November 9, 2019
In a recent missive on LinkedIn, investment legend Ray Dalio highlights the strange situation that the world is currently in and that policymakers may soon desire to take action to keep wealthy entrepreneurs and capitalists within their borders to help pay for the many partially funded or unfunded liabilities that governments are responsible for.
This seems to me to be one of those arguments that big businesses makes every few years in an attempt to keep their corporation taxes and regulatory burden as low as possible.
However, for the owners and entrepreneurs behind businesses, things may not be so simple. Dalio almost certainly makes a great point, but I wonder to what degree this translates in Europe and the EU. The USA is obviously an enormous country with huge business opportunities, but moving internally for a different lifestyle is very possible, in a way that is different in the EU.
Successful financiers in the US might move to Florida or California for a different lifestyle. Whereas, a successful financier in London would probably consider Monaco, Nice or Marbella. Those European options mean that it is much more normal for successful Europeans to find their way into another country than for an American.
However, it is not just people that can move. A corporation may have fixed infrastructure, but the wealthy owners are probably able to be much more fleet footed with their capital and assets. As I have recently been recommending (here), the world of cryptocurrencies offers a new, low profile and very portable way to move assets from one location to another, bypassing any sort of government control. There are a range of other physical and alternative assets that offer some or all of these privacy or mobility factors, as disscussed at https://www.xsse.se/alternativa-investeringar. Of course, some assets can simply have their ownership transferred, though this would normally trigger some sort of capital gains tax event for the seller.
The question may be whether anything really changes in the world and whether negative interest rates really make that much difference. It is certainly true that wealthy people have been moving to escape or reduce their tax burden’s for a very long time. It is also true that governments have been trying to prevent this for a very long time.
However, for the very sophisticated investor, below zero interest rates may offer ways to arbitrage their net worth and generate even greater than average investment gains. And there can be little doubt that unfunded liabilities will become one of the great financial, economic and political clashes of our time, across the developed world, as the boomer generation fights to maintain control of the resources they have accumulated and receive incomes and care that their generation promised to itself, to be paid for by future generations. All of that needs to happen while many boomers are still denying climate change, pushing the actions and costs required to mitigate that coming catastrophe onto younger people.financialguy